- Pound (GBP) steadies after losses yesterday
- UK inflation is expected to rise
- Euro (EUR) fell after inflation data
- ECB speakers are in focus
The Pound Euro (GBP/EUR) exchange rate is holding steady after gains in the previous session. The pair rose +0.19% in the previous day, settling on Tuesday at €1.1600 and trading in a range between €1.1576 – €1.1609. At 06:35 UTC, GBP/EUR trades +0.02% at €1.1602.
The pound is holding steady in early trade as investors look ahead to UK inflation data. Economists are expecting inflation to tick higher in August to 7% year on year, up from 6.8% in July. Meanwhile, core consumer prices, which exclude more volatile items such as food and fuel are expected to cool very modestly to 6.8% from 6.9%.
The data comes after several countries have seen inflation tick higher, including the US last week and Canada yesterday, as oil prices continue to rise.
The data comes ahead of the Bank of England interest rate decision on Thursday. The central bank is expected to raise interest rates again to 5.5%. However, there are questions over whether the central bank will be able to hike rates further, given the deteriorating economic outlook for the UK economy.
Yesterday the Bank of England vice governor Sam Woods warned that banks are seeing impairments rising. His comments come as British households and businesses have been hit by the surge of inflation last year and a subsequent rise in interest rates.
The euro slipped yesterday after eurozone inflation was downwardly revised by 5.2% year on year in August, slightly softer than the preliminary 5.3% reading and down from 5.3% in July. Meanwhile, core inflation, which strips out more volatile items such as food and fuel confirmed the preliminary reading of 5.3%, down from 5.5%.
Whilst inflation is showing signs of cooling, it’s worth noting that it’s still over 2.5 times the ECB’s target level.
The ECB raised interest rates last week to a record 4% and hinted at a pause in rate hikes. However, ECB policymaker Peter Kazimir said that policymakers may need to wait until March to decide whether more rate hikes are needed or not. Today, there are plenty of ECB officials due to speak who could shed more light on the future path for interest rates.
